What does it mean when we say the economy is the sum of individual decisions?

When we say the economy is the sum of individual decisions, we emphasize that the overall economic activity results from countless choices made by individuals and businesses. Each decision reflects trade-offs, where individuals weigh the benefits and costs of their actions, typically driven by self-interest. This collective behavior shapes demand, supply, and prices in the market, illustrating how personal choices collectively impact the broader economy.

This concept highlights that economic outcomes are not solely dictated by observable entities like governments, wealthy individuals, or market mechanisms alone, but rather arise from the individual behaviors and preferences of all participants in an economy. Such interactions lead to dynamic shifts in economic conditions and opportunities, making the understanding of individual decision-making vital for grasping how economies function as a whole.